The acquisition bolsters EMC's effort to increase the fraction of revenue that comes from selling software instead of its traditional business of selling hardware. EMC chief executive Michael Ruettgers predicted in October that nearly one-fifth of EMC's 2001 revenue goal of $10 billion would come from software.
Softworks' software is used to ease the management of information kept on centralized storage systems. It works with several different types of computers, including IBM S/390 mainframes, Windows NT and Unix.
"It makes great sense," said Dataquest analyst Carolyn Dicenzo.
For EMC, it means its new Control Center product will be better and the company can accelerate its push to tap into Unix and Windows NT networks, she said. And for Softworks, it means the company's solid products will get a future that had become uncertain with Softworks difficulties expanding out of the mainframe market, she said.
Softworks stock rose 0.25 to 9.56 in midday trading. In recent weeks, the stock has been climbing from an all-time low of 3 the company hit in November. EMC stock dipped 0.75 to 98.25.
Under the terms of the agreement, EMC will buy all outstanding Softworks shares at $10 each. Boards of directors at both companies have approved the agreement, but regulatory approval still must be obtained. The deal is expected to be completed by the end of the first quarter of 2000.
Softworks, a 240-person company, "has hit some logistics walls" as it expanded from the mainframe market, where customers approach companies, to the feistier realm of Windows and Unix, where companies have to market their products more aggressively, Dicenzo said.
"Softworks has been a very solid company with good products and a reputation for good support, but they're a very low-visibility company," Dicenzo said. "EMC is the premier sales and marketing company and is very committed to software."
In addition, Software, faced with competition from consolidating competition, was having trouble paying for the increased need for research and development, she said. "It was starting to have profitability problems," she said.
EMC's core business is selling storage hardware that attaches to powerful servers and mainframe computes. It expanded its line into lower-end but still fairly powerful storage systems with its acquisition of Data General in August.
EMC is facing increasing competition. IBM has begun selling a new storage product called "Shark." Sun Microsystems, which sells servers popular among Internet companies, is trying to bundle as much of its own storage products. And EMC's former ally Hewlett-Packard now sells HP-labeled storage from Hitachi Data Systems.